4 Mistakes to Avoid When Building an Investment Property

Everyone loves the thrill and excitement of building a brand-spanking-new home. But when it comes to an investment property build, one should proceed with caution. If you’re not prepared, by the end of the build, your budget can be shot to pieces, making it even harder to claw your way on top. So how can you keep a build from blowing out? Whether you’re a Freddy First-timer or a seasoned veteran, here are four common mistakes to avoid when building an investment property.

1. Mind the ‘F’ word

There’s a magical little word that often appears on property advertisements, right next to that can’t-pass-up ‘amazing’ price. It’s a fairly innocuous four-letter word, but it can cause big problems for unsuspecting buyers. And that little word is ‘from.’ This is known as ‘bait advertising’ and the idea is to bring as many people as possible into their sales offices. These trained sales professionals know all the right things to say and how to appeal to your wants.

They’re trained to upsell you on everything from light fittings, door handles, taps, raised ceilings, larger doors and even more rooms. Once that happens, Boom! Your ‘bargain’ investment property is blown way out over budget before you’ve even laid the foundations.

So a word of caution, to avoid over-capitalising on your investment, leave your emotions at the door. And mind the ‘F’ word!

2. ‘Turnkey’ properties

Ah, ‘turnkey.’ Another buzzword that’s claimed a few industry rookies over the past few years. As the name suggests, a turnkey property build is a package that includes the lot, so a tenant could walk up, put their key into the front door and they’re Home Sweet Home. However, there is some misrepresentation in the term. If the so-called turnkey property is missing anything, it will cost you a lot more to install individually after it’s built. And on top of that is the added cost of having the property vacant in the process. If you buy a turnkey investment property, make sure it needs no further additions, such as the TV antenna for the roof, a letterbox, clothesline, fence, driveway, or landscaping. Just remember that things aren’t always as they seem.

3. The quality of inclusions

Here’s some unsurprising news. The builder may have included everything so that the property is move-in ready, but a builder is a businessman, and if they can save a few bucks on fittings – they will. Implementing poor quality or cheap inclusions is an effective cost-saving strategy a lot of builders use. It’s important to make sure the level of quality is at least mid-range without going over the top. Make sure you hunt around and compare packages. You don’t want to be replacing items a year later.

4. Not looking harder for fixed-price contracts

Most builders will not agree to a completely fixed-price contract. Which is reasonable enough as they may not know what the site costs will be and like to leave it open for unforeseen circumstances. However, this adds to your overall costs. Some shady builders will deliberately set a low initial quote to get your business, but know full well they’ll increase it once you’ve signed the contract and construction is underway. If you can nab one, a completely fixed-price contract is a big win for a ‘tenant-ready’ build with good, reliable inclusions. This allows you to budget accurately for the investment without being caught by surprise with extra costs, meaning you can borrow exactly what you need up-front to get the job finished. Find a fixed-price contract and you’ll have more dollars and fewer headaches.

Key takeaways

  • Read the fine print and always look for the word ‘from’
  • Keep your emotions in check
  • Make sure a ‘turnkey’ investment property has all the inclusions
  • Check the quality of inclusions and make sure they’re at least mid-range
  • Compare similar packages
  • Look for genuine fixed price contracts if possible – rare, but not impossible.

 

Related Posts

  • Buying an investment property is always an exciting time, but it also requires you to make some really big decisions. It’s not uncommon for some investors to feel overwhelmed and confused by all the (sometimes conflicting) information out there. One of the most problematic debates is whether you should buy…
  • Usually, when you buy a property it will come with ‘vacant possession’, which means the home is empty and ready for you to move in. However, some investment properties are sold with a tenant still in the home. This presents some unique challenges and opportunities for astute buyers, depending on…
  • Building an investment property portfolio doesn’t simply happen by chance. It takes years of planning and commitment to build a property empire, and strategy is your best friend. While there’s more than one way to secure an impressive portfolio, we’ve put together some hot tips for beginners to help you…

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.